World Economy

'The US is on track to lose this trade war,' economist Stephen Roach says

Key Points
  • The U.S.-China trade war has moved beyond rhetoric and into "live ammunition" territory, Yale University Senior Fellow Stephen Roach said.
  • He added that the U.S. was "on track to lose this trade war."
  • The Trump administration released a list of tariffs on $200 billion worth of Chinese goods earlier this week, although they have yet to take effect.
The US is 'on track to lose this trade war,' says professor
The US is 'on track to lose this trade war,' says professor

The U.S. and China are in the early innings of a trade war, and prominent economist Stephen Roach says it's the United States that's on track to lose.

"Trade wars are not easy to win. They're easy to lose, and the U.S. is on track to lose this trade war," Roach, a senior fellow at Yale University and former Morgan Stanley Asia chair, told CNBC's "Squawk Box" on Thursday.

"This is live ammunition. This is not just rhetorical discussion any more," he said. "We're in the early stages of fighting skirmishes in a real, live trade war. The question is, how far does it go? And how significant will the ammunition be in the future?"

President Donald Trump's administration late on Tuesday released its list of $200 billion worth of Chinese goods that it said it aims to subject to 10 percent tariffs following a review process. China threatened retaliatory action and pledged that it would lodge a complaint with the World Trade Organization.

Last week, U.S. tariffs on $34 billion in Chinese products went into effect. China responded by slapping 25 percent duties on the same amount in U.S. goods.

Other economists disagree

Certainly, there are prominent economists who disagree with Roach.

Mohamed El-Erian, chief economic advisor at Allianz, told CNBC that the United States is in a stronger position than China is.

"In relative terms, we are winning and we will win the trade war," El-Erian said Monday on "Fast Money." El-Erian is considered one of the most influential financial market thinkers in the world.

"Just look at the performance of U.S. markets relative to China and relative to others," said El-Erian, who was CEO of Pimco. "That is consistent."

China imported only about $130 billion in U.S. goods last year, compared with the $505 billion in Chinese goods imported by the United States.

But that doesn't mean China will run out of ammunition in the trade fight, Roach argued.

The idea that China has a math problem misses the fact that America has a few problems of our own.
Stephen Roach
senior fellow, Yale University

"The U.S. is hugely dependent on China as a source for low-cost goods to make ends meet for American consumers. We’re hugely dependent on China to buy our Treasurys to fund our budget deficits, which as you know, are getting larger," Roach explained.

"The idea that China has a math problem misses the fact that America has a few problems of our own."

Roach's take that the U.S. will come away on the losing side was in stark contrast to the president's views on the matter.

Trump said in a tweet in March that "trade wars are good, and easy to win," although his comment at the time appeared to be directed at the U.S.-Mexico trade deficit. Apart from China, the U.S. is also entangled in disputes over trade with the European Union, Canada and Mexico.